Chile Weighs Major Corporate Tax Cut Despite Revenue Concerns

An analysis by the College of Accountants reveals that presidential candidate Evelyn Matthei’s proposal to slash Chile’s corporate tax rate would position the country among the OECD’s lowest tax jurisdictions.

The proposed reduction from 27% to 18% over a decade would transform Chile’s tax competitiveness dramatically. Chile currently maintains the tenth highest corporate tax rate among OECD members.

The current 27% rate sits well above the OECD average of 23.2%. Matthei’s planned reduction would vault Chile to the fourth lowest position in the organization, joining fiscally competitive countries like Ireland and Lithuania.

The government simultaneously pursues its own tax reform effort. Finance Minister Mario Marcel aims to reduce the corporate rate to 24% or potentially lower through various legislative proposals.

These efforts faced a significant setback when opposition coalition Chile Vamos rejected any compensatory tax increases. Juan Alberto Pizarro, head of the College of Accountants’ tax commission, warns about the fiscal implications.

Chile’s Tax Debate

The positive economic growth effects would likely fail to offset the substantial public revenue losses from such a dramatic rate reduction. Matthei acknowledges implementation challenges ahead.

She stated the plan “requires a complex design of reductions, subject to growth, spending efficiency, and collection efficiency.” The feasibility depends on finding alternative revenue sources or implementing spending cuts.

Chile’s tax-to-GDP ratio already sits at just 20.6%, significantly below the OECD average of 33.9%. This places the country 37th out of 38 member states in terms of tax collection capacity. Any major revenue reduction creates additional fiscal sustainability challenges.

The current tax system provides some differentiation. Large companies pay 27% under the partially integrated system, while small and medium enterprises enjoy a reduced 25% rate. The opposition’s proposal would flatten this structure significantly.

Chile’s economy shows signs of resilience with growth recovering to 2.4% in 2024. Projections indicate solid performance at 2.3% in 2025 and 2.1% in 2026. Matthei and other candidates must balance growth incentives against vital public revenue needs as the presidential race intensifies.

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